Income growth may be more important to the development of housing bubbles than cheap credit

The development of a housing bubble in the United States is generally regarded as one of the root causes of the financial crisis that began in 2007, but what causes housing bubbles to occur? Alison Johnston and Aidan Regan write that while the bubble leading to the financial crisis has tended to be blamed on the spread of cheap credit, the fact that house price rises were far larger in some countries than others suggests there were other factors at play. They argue that although credit plays a role in housing bubbles, an increase in income appears to be far more closely linked to the price rises that occurred across the OECD prior to 2007.